David Prosser: No longer big in Japan

Outlook There was a time when no self-respecting young Japanese executive – male or female – left home without first adorning themselves in designer labels. Almost overnight, however, sales of luxury goods have collapsed, as reflected in Versace's announcement of a complete withdrawal from the country.

The Italian label is not alone in finding that the Japanese have fallen out of love with the most upmarket brands. Sales of luxury goods fell by 11 per cent last year alone and analysts expect sales to fall back to levels not seen since the late Eighties in the years ahead.

In part, the slide is a result of the financial crunch and subsequent recession, but there are some retailers that are still doing very nicely in the country. H&M, the Swedish retailer, can't open its stores in Japan quickly enough to satisfy demand. Uniqlo, the home-grown retailer, is torn between the soaring demands of its domestic market and its equally successful international expansion.

Japan, in short, has become cost-conscious about its fashion. More top-end names may follow Versace out of the country. The good news, however, is that a few hundred miles to the west of Japan, a new market is opening. Sales of luxury goods in China totalled $7bn last year, compared to $20bn in Japan. On current trends, China will overtake its neighbour within five years.